DECLARATION

I do hereby declare that this piece of project report entitled “A Study on Working capital

Management practices in THE DOABA COOPERATIVE MILK PRODUCERS UNION LTD.

MILK PLANT, JALANDHAR” for partial fulfillment of the requirements for the award of the

degree of “MASTER OF BUSINESS ADMINISTRATION” is a record of original work done by

me under the supervision and guidance of Ms. Nisha Kurup, CT Institute of Management & IT

This project work is my own and has neither been submitted nor published elsewhere.

SIGNATURE OF THE STUDENT

CERTIFICATRE BY SUPERVISOR

This is to certify that Arpan a student of M.B.A. 3rd Sem. in the year 2011

(7043221394) have carried out a project entitled “COMPARITIVE ANALYSIS OF

ANGEL BROKING AND OTHER STOCK BROKER COMPANIES” Sunder my

supervision. This is to certify that student has complied with all the guidelines designed

for the project report. To the best of my knowledge this report is in authentic record of

work carried out by the student and it is considered fit for being referred to evaluation.

Project Guide:

Prof: Harish Mehta

ACKNOWLEDGEMENT

The accomplishment of this project was not being possible individually without the

encouragement, assistance and valuable support from various sources. Thus my whole hearted

thanks to “Almighty”. Knowledge and Co-operation are essential for success in any project

field.

No creative work can be done in isolation. I got guidance, motivation at every step of our

progress. I would like to add a few heartfelt words for the people who were the part of this

project in numerous ways.

My heartfelt gratitude to Dr. Rajesh Bagga, Director, CT Institute of Management & IT,

Jalandhar who has given me the opportunity to emerge as professionals in the field of

management.

I owe a great debt of gratitude to Er. Varun Nayyar , Assistant Professor in Management and

Training & Placement Officer, my project guide for his support. He guided to bring the project

to its completion. I would also sincerely thank to Mr. Nagendra Joshi (Mgr. Acct. Verka),

Mr. D. P. Sharma, Mr. Chander Mohan Puri, Ms. Rama Parmar, Ms. Kamaljeet Kaur,

Mr. Ashok Kumar Sharma, Ms. Neelam Handa, Sdni. Satwant Kaur, Mr. Dinesh Jain,

Sr. Jaspal Singh, Sd. Palwinder Kaur ( ACCOUNTS DEPTT.) Madame Mathew, Sr.

Gurmeet Singh, Mr. Ram Lubaya.( Computer Department).

In the end I would like to thank my GOD who helped me directly or indirectly in the

completion of this project.

PREFACE

To start any business, First of all we need finance and the success of that business entirely

depends on the proper management of day-to-day finance and the management of this short-

term capital or finance of the business is called working capital management.

Working Capital is the money used to pay for the everyday trading activities carried out by the

business - stationery needs, staff salaries and wages, rent, energy bills, payments for supplies

and so on.

I have tried to put my best effort to complete this task on the basis of skill that I have achieved

during the last one year study in the institute.

I have tried to put my maximum effort to get the accurate statistical data. However I would

appreciate if any mistakes are brought to my by the reader.

INTRODUCTION

WORKING CAPITAL

The life blood of business, as is evident, signified funds required for day-to-day operations of

the firm. The management of working capital assumes great importance because shortage of

working capital funds is perhaps the biggest possible cause of failure of many business units in

recent times. There it is of great importance on the part of management to pay particular

attention to the planning and control for working capital. An attempt has been made to make

critical study of the various dimensions of the working capital management of THE DOABA

COOPERATIVE MILK PRODUCERS UNION LTD. MILK PLANT, JALANDHAR .

Decisions relating to working capital and short term financing are referred to as working

capital management. These involve managing the relationship between a firm's short-term

assets and its short-term liabilities. The goal of Working capital management is to ensure that

the firm is able to continue its operations and that it has sufficient money flow to satisfy both

maturing short-term debt and upcoming operational expenses.

Working capital is a valuation metric that is calculated as current assets mnus current liabilities. Working capital is also known as operating capital.

• Current Assets

This is any cash or assets that can be quickly turned into cash. Current assets are assets,

which can be converted into cash within an accounting year.

Constituents of Current Assets:

▪ Cash in hand and bank balance

bills receivables

Sundry debtors (provision for bad debts)

Short term loans and advances

Inventories of stocks.

Raw material.

Work in progress.

Stores and spares.

Finished goods.

Prepaid expenses.

Accrual incomes.etc

• Current Liabilities

Current liabilities are those claims of outsiders, which are expected to mature for

payment within an accounting year.

Constituents of current Liabilities:

Bills payable

Sundry creditors or account payable

Short term borrowings

Dividend payable

Bank overdraft

Provisions

Outstanding expenses

Unaccrued income

TYPE OF WORKING CAPITAL

On the basis of Concept

1. Gross working capital: the gross working capital refers to the firm’s investment in all

the assets taken together. The total of investment in all the individual current assets is the

gross working capital.

For example: if a firm has a cash balance of Rs. 50,000 ,debtors of Rs.70,000 and

inventory of raw material and finished goods has been assessed at Rs.1,00,000,then the

gross working capital of the firm is Rs.2,20,000 (i.e. ,Rs

50,000+Rs.70,000+Rs.1,00,000).

2. Net working capital: the term net working capital may be defined as the excess of total

current assets over total current liabilities. Current liabilities refer to those liabilities

which are payable within a period of 1 year. The net working capital may either be

positive or negative. If the total current assets are more than total current liabilities, then

the difference is known as positive net working capital, otherwise the difference is

known as negative net working capital. The net working capital measures the firm’s

liquidity. The greater the margin, the better will be the liquidity of the firm.

Net working capital= total current assets – total current liabilities

WORKING CAPITAL

A financial manager must consider both (gross and net working capital) because they provide

different interpretation. The gross working capital denotes the total working capital or the total

investment in current assets. This will help avoiding 1.the unnecessarily stoppage of work or

chance of liquidation due to insufficient working capital, and 2.effects on profitability (over

flowing working capital implies cost).The gross working capital also gives an idea of total

funds required for maintaining current assets.

On the other hand, net working capital refers to the amount of funds that must be

Invested by firm, more or less are regularly in current assets. The net working capital also

denotes the net liquidity being maintained by the firm.

On the basis of time

1. Permanent /fixed working capital: Permanent working capital may be defined as the

minimum level of current assets, which is required by a firm to carry on its business

operations. Every firm has to maintain a minimum level of raw materials, work-in-

progress, finished goods and cash balances.

For example-extra inventory of finished goods will have to be maintained to support the

peak periods of sale. Permanent working capital is permanently needed for the business

and therefore, it should be financed out of long term funds.

2. Fluctuating /variable working capital: It is the extra working capital needed to support

the changing production and sales activities of the firm. The amount of temporary

working capital keeps on fluctuating on time to time on the basis of business activity.

Both kind of working capital – permanent and fluctuating (temporary) are necessary to

facilitate production and sales through the operating cycle. The amount over and above

permanent working capital is temporarily variable or fluctuating.

Determinants of working capital:

Working capital requirements of a concern depends on a number of factors, each of

which should be consider carefully for determining the proper amount of working

capital. It may be however be added that these factors affect differently to the different

units and these keeps varying from time to time.

In general, the determinants of working capital which are common to all organization’s

can be summarized as under:

1. Nature of Business:

Need for working capital is highly depends on what type of business, the firm in. there are

trading firms, which needs to invest a lot in stocks, ills receivables, liquid cash etc. public

utilities like railways, electricity, etc., need much less inventories and cash. Manufacturing

concerns stands in between these two extends. Working capital requirement for manufacturing

concerns depends on various factors like the products, technologies, marketing policies.

2. Production Policies:

Production policies of the organization are effects working capital requirements very highly.

Seasonal industries, which produces only in specific season requires more working capital.

Some industries which produces round the year but sale mainly done in some special seasons

are also need to keep more working capital.

3. Size of Business:

Size of business is another factor to determine the need for working capital.

4. Length of Operating Cycle:

Operating cycle of the firm also influence the working capital. Longer the orating cycle, the

higher will be the working capital requirement of the organization.

5. Credit Policy:

Companies; follows liberal credit policy needs to keep more working capital with them.

Efficiency of debt collecting machinery is also relevant in this matter. Credit availability form

suppliers also effects the company’s working capital requirements. A company doesn’t enjoy a

liberal credit from its suppliers will have to keep more working capital.

6. Business Fluctuation:

Cyclical changes in the economy also influencing the working capital. During boom period, the

tendency of management is to pile up inventories of raw materials and finished goods to avail

the advantage of rising prove. This creates demand for more capital. Similarly during

depression when the prices and demand for manufactured goods. Constantly reduce the

industrial and trading activities show a downward termed. Hence the demand for working

capital is low.

7. Current Asset Policies:

The quantum of working capital of a company is significantly determined by its’ current assets

policies. A company with conservative assets policy may operate with relatively high level of

working capital than its sales volume. A company pursuing an aggressive amount assets policy

operates with a relatively lower level of working capital.

8. Fluctuations of Supply and Seasonal Variations:

Some companies need to keep large amount of working capital due to their irregular sales and

intermittent supply. Similarly companies using bulky materials also maintain large reserves’ of

raw material inventories. This will be increase the need of working capital. Some companies

manufacture and sell goods only during certain seasons. Working capital requirements of such

industries will be higher during certain season of such industries period.

9. Other Factors:

Effective co ordination between production and distribution can reduce the need for working

capital. Transportation and communication means. If developed helps to reduce the working

capital requirement.

SOURCES OF WORKING CAPITAL

The company can choose to finance its current assets by

1. Long term sources

2. Short term souces

Long term sources of permanent working capital include equity and preference shares,

retained earnings, debentures and other long term debts from public deposits and financial

institution. The long term working capital needs should meet through long term means of

financing. Financing through long term means provides stability, reduces risk or payment. And

increases liquidity of the business concern. Various types of long term sources of working

capital are summarized as follow:

1. Issue of shares:

It is the primary and most important sources of regular or permanent working capital.

Issuing equity shares as it does not create and burden on the income of the concern. Nor

the concern is obliged to refund capital should preferably raise permanent working

capital.

2. Retained earnings:

Retain earning accumulated profits are a permanent sources of regular working capital. It

is regular and cheapest. It creates not charge on future profits of the enterprises.

3. Issue of debentures:

It creates a fixed charge on future earnings of the company. Company is obliged to pay

interest. Management should make wise choice in procuring funds by issue of

debentures.

4. Long term debt:

Company can raise fund from accepting public deposits, debts from financial institution

like banks, corporations etc. the cost is higher than the other financial tools.

5. Other sources:

Sale of idle fixed assets, securities received from employees and customers are examples

of other sources of finance.

Short term sources of temporary working capital

Temporary working capital is required to meet the day to day business expenditures. The

variable working capital would finance from short term sources of funds. And only the period

needed. It has the benefits of, low cost and establishes closer relationships with banker. Some

sources of temporary working capital are given below:

1. Commercial bank:

A commercial bank constitutes significant sources for short term or temporary working

capital. This will be in the form of short term loans, cash credit, and overdraft and though

discounting the bills of exchanges.

2. Public deposits:

Most of the companies in recent years depend on this source to meet their short term

working capital requirements ranging from six month to three years.

3. Various credits:

Trade credit, business credit papers and customer credit are other sources of short term

working capital. Credit from suppliers, advances from customers, bills of exchanges, etc

helps to raise temporary working capital.

4. Reserves and other funds:

Various funds of the company like depreciation fund. Provision for tax and other

provisions kept with the company can be used as temporary working capital. The

company should meet its working capital needs through both long term and short term

funds.

EXCESS OR INADEQUATE WRKING CAPITAL

Every business concern should have adequate working capital to run its business operations. It

should not have either redundant / excess working capital or inadequate/ shortage of working

capital. Both excess as well as shortage of working capital situations are bad for any business.

However, out of the two, inadequacy or shortage of working capital is more dangerous from

the point of view of the firm.

Disadvantages of Redundant or Excess Working Capital:

1. Idle funds, non-profitable for business.

2. Unnecessary purchasing & accumulation of inventories over required level.

3. Excessive debtors and defective credit policy, higher incidence of B/D.

4. Overall inefficiency in the organization.

5. When there is excessive working capital, Credit worthiness suffers.

6. Due to low rate of return on investments, the market value of shares may fall.

Disadvantages or Dangers of Inadequate or Short Working Capital:

1. Cannot pay off its short-term liabilities in time.

2. Economies of scale are not possible.

3. Difficult for the firm to exploit favorable market situations.

4. Day-to-day liquidity worsens.

5. Improper utilization the fixed assets and ROA/ROI falls sharply.

Need for working capital

The basic objective of financial management is to maximize shareholder’s wealth. For

this it is necessary to generate sufficient profits.

The extent to it, which the profit can be earned, largely depends on the magnitude of

sales. However sales do not convert into cash instantly.

There is invariable the time gap between the sales of goods and receipts of cash. There is,

therefore, a need for working capital in the form of Current Assets to deal with the

problem arising.

Out of the lack of immediate realization of cash again goods sold. Therefore, sufficient

working capital is necessary to sustain sales activity.

OPERTING CYCLE

The working capital requirement of a firm depends, to a great extent upon the operating cycle

of the firm. The operating cycle may be defined as the time duration starting from the

procurement of goods or raw material and ending with the sales of realization.

The length and nature of the operating cycle may differ from one firm to another depending

upon the size and nature of the firm. In a trading concern, there is a series of activities starting

from procurement of goods (saleable goods) and ending with the realization of sales revenue

(at the time of sale itself in the case of cash sales and at the time of debtors realization in case

of credit sales).similarly in case of manufacturing concern, this series starts from the

procurement of raw materials and ending with the sales realization of finished goods. In both

the cases, however, there is a time gap between the happening of the first event and the

happening of the last event. This time gap is called the operating cycle.

Thus, the operating cycle of a firm consists of the time required for the completion of

the chronological sequences of some or all of the following:

1. Procurement of raw material and services.

2. Conversion of raw material into work-in-progress.

3. Conversion of work-in-progress into finished goods.

4. Sale of finished goods (cash or credit)

5. Conversion of receivable into cash.

OBJECTIVES OF THE STUDY

1. To examine the effectiveness of working capital management polices with the help of

accounting ratio.

2. To evaluation the financial performance of the company.

3. To make suggestions for policy makers for effective management of working capital.

SCOPE OF THE STUDY

1. The scope is limited to operations of Praga tools Ltd, Hyderabad.

2. The period consider 2 months

The scope of the study is limited to collecting the financial data published in the annual

reports of the company with reference to the objectives stated above and an analysis of the

data with a view to suggest favorable solution to various problems related to financial

performance.

RESEARCH METHEDOLOGY

Research methodology is a way to systematically solve the research problem. It may be

understood as a science of studying now research is done systematically. In that various steps,

those are generally adopted by a researcher in studying his problem along with the logic behind

them. It is important for research to know not only the research method but also know

methodology. ”

The procedures by which researchers go about their work of describing, explaining and

predicting phenomenon are called methodology.”

Methods comprise the procedures used for generating, collecting and evaluating data.

All this means that it is necessary for the researcher to design his methodology for his problem

as the same may differ from problem to problem.

Data collection is important step in any project and success of any project will be

largely depend upon now much accurate you will be able to collect and how much time, money

and effort will be required to collect that necessary data, this is also important step. Data

collection plays an important role in research work.

Without proper data available for analysis you cannot do the research work accurately.

TYPE OF DATA COLLECTED

There are two types of data collection methods available.

1. Primary data collection

2. Secondary data collection

1) Primary data

The primary data is that data which is collected fresh or first hand, and for first time

which is original in nature. Primary data can collect through personal interview, questionnaire

etc. to support the secondary data.

2) Secondary data collection method

The secondary data are those which have already collected and stored. Secondary data

easily get those secondary data from records, journals, annual reports of the company etc. It

will save the time, money and efforts to collect the data. Secondary data also made available

through trade magazines, balance sheets, books etc.

This project is based on primary data collected through personal interview of head of

account department and other concerned staff member of finance department. But primary data

collection had limitations such as matter confidential information thus project is based on

secondary information collected through annual report of the company, supported by various

books and internet sites.

COMPANY PROFILE

BRIEF HISTORY OF THE DOABA COOPERATIVE MILK PRODUCERS UNION LTD.

MILK PLANT, JALANDHAR

The Doaba Cooperative Milk Producers Union Ltd., Jalandhar was set up in the year 1972 with

Regd.No.193 dated 4.11.1972 under Cooperative Sector with the financial assistance provided

by State Government and N.C.D.C. The Doaba Milk Plant was established in the year 1976

with a capital cost of Rs. 110 lakhs.

The primary objectives of the Union were to provide ready market to the Milk Producers for

sale of Milk in the villages through Cooperatives on the one hand and to provide wholesome

hygienic good quality processed milk and milk products to the urban consumers at

remunerative price on the other hand. The Milk Union has saved the milk producers from the

unfair trade practices of middlemen, Dodhies and Milk Contractors thereby improving their

economic condition tremendously.

The Milkshed area of Milk Union comprises districts of Jalandhar, Kapurthala and Nawanshar.

It consists of 8 Tehsils namely Jalandhar, Nakodar, Phillaur in Jalandhar Distt., Kapurthala,

Sultanpur Lodhi, Phagwara, Bhulath in Kapurthala District and Nawanshahar in Nawanshahr

District covering 1797 villages in 18 blocks. It Started with 100 Milk Producers Cooperative

Societies in the year 1972 which have grown upto 934 i.e. (701 MPCS + 233 Nominal

Members) having membership of 38014 as on 31.03.11

Milk Union have got three chilling center namely Sultanpur Lodhi in Kapurthala,, Shahkot in

Jalandhar District and Khatkar Kalan in Nawanshahar district with capacity of milk handling

20000 LPD, 20000 LPD and 30000 LPD respectively. Moreover, Khatkarkalan is a very

famous village of Shaheed-E-Ajam S.Bhagat Singh and the name of the Milk Chilling

Centre, .Khatkar has been named in the memory of S.Ajit Singh uncle of Shaheed –E-Ajam

Bhagat Singh.

Milk Plant of the Union was initially set up in the year 1976 with a handling capacity of 50,000

liters. Milk/ day. Subsequently, the Plant was expanded in the year 1985 to 1.00 lakh liters of

milk/ day and Plant was further expanded in year 1991 to 3.00 lakh liters of milk per day

besides facilities to manufacture milk products like Ghee, Butter, Skimmed Milk Powder,

Whole Milk Powder, Dairy Whitener, Paneer, Curd, etc. The Plant is also meeting the

pasteurized liquid milk demand of residents of Jalandhar, Kapurthala, Nawanshahr districts.

CERTIFICATION OF ISO-9001:2000 & IS –15000 (HACCP)

An ISO-9002 and IS-15000 (HACCP) certification has been accredited to Doaba Milk Union

by the Bureau of Indian Standards on dated 16.5.2000. Recently, we have received revised

ISO 9001-2000 Certification from BIS. This endeavour to improve the overall quality of its

product and services on line of Total Quality Management was further recognized by Bureau

of Indian Standards by conferring commendation certificate for the prestigious Rajiv Gandhi

National Quality Award, 2001.

FINANCIAL PERFORMANCE:

Financial performance has considerably been improved during the last nine years. As on

31.03.2002 Cash loss was Rs.13.20.crore. As on 31.03.11 there is no cash loss.

Email : doabamilk_jal@yahoo.co.in

OBJECTIVE OF THE ORGANISATIN

If we keep our customer happy, they will keep us in business. Every organization get success

through giving proper satisfaction to its customer .customer satisfaction is the basis for any

successful organization.

Milk plant has some objective to operate its business:-

1. To carry out the activities to economy development of agriculturists by organizing

effectively production, processing marketing of milk products as per direction of

federation

2. To provide better facilities to milk producer so as easily availability of milk can

become possible and for their development.

3. To purchase commodities from the member and deal with non-members for marketing,

dairy and allied products subject to such conditions as may be decided by the board

from time to time.

4. Constant up gradation of producers and process for better product quality adopting food

safety management system to ensure total safety to customer health .

The company had a following LOGO for consumer satisfaction:-

HIERARCHY OF THEORGANISATION

 

PRODUCTS

LASSI ICE CFREAM

MILK BUTTER

CHEESE GHEE

CURD

SWEETS